Jayalalithaa writes to Modi over tax concessions to Andhra, Telangana

Aug 25, 2014

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Tamil Nadu Chief Minister J Jayalalithaa today urged the Central Government to decide on area-based tax incentivesto Andhra Pradesh and Telangana in a way that would not render neighbouring states uncompetitive for investments.

In a letter to the Prime Minister Narendra Modi, she said: "The Andhra Pradesh State Re-organization Act, 2014, already contains a substantial and significant economic package. Hence, I strongly urge you to adopt a cautious approach to the complex issue of providing area based tax concessions in the name of encouraging economic development in these two States."

She added, area-based tax incentives run counter to one of the basic thrusts of economic reforms - a rational tax policy that is neutral, encourages a common market in the country, rewards competitive efficiency, and exploits comparative advantage.

Jayalalithaa further stated that the Centre must exercise greatest care in approaching this issue. Nothing should be done which would distort economic incentives or a level playing field and render States like Tamil Nadu uncompetitive vis a vis their neighbours.

She added that the Andhra Pradesh State Re-organization Act, 2014, already contains a substantial and significant economic package. “Hence, I strongly urge you to adopt a cautious approach to the complex issue of providing area based tax concessions in the name of encouraging economic development in these two States,” she said.

Any shift of investments from States with a strong infrastructure and trained manpower to other States motivated by tax reliefs alone would undo the two decade long work of rationalisation of tax structures.

While stressing that Tamil Nadu does not begrudge the benefits that are to be offered to the two neighbouring states, the Chief Minister said that the type of tax concessions appears to have been left to the discretion of the Centre.

Apart from area-based tax exemptions leading to flight of capital from neighbouring states she also said it is also fiscally expensive.

She said the Centre has indicated that the total revenue forgone through such area-based tax concessions during 2013-14 was Rs 9,267.5 crore in direct taxes and around Rs 18,000 crore in excise duty.

"It must also be pointed out that when a bifurcation of three states took place in 2000, neither Jharkhand and Chattisgarh, two of the newly created states nor the residual states of Bihar, Madhya Pradesh and Uttar Pradesh received any such fiscal incentive," Jayalalithaa said.